INCOME TAX OFFICER-16(3)(1), MUMBAI vs. M/S. PRIYAM PROJECTS (I) PRIVATE LIMITED, MUMBAI

आयकरअपीलीयअिधकरण�ायपीठमुंबईम�। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRINARENDER KUMAR CHOUDHRY, JM & SHRI ARUN KHODPIA, AM I.T.A. No.5297/Mum/2025 (Assessment Year: 2020-21) Income Tax Officer-16(3)(1) M/s. Priyam Projects (I) Private Room No.447, Aaykar Bhavan, Limited Vs. M.K. Road, Mumbai-400020 1502, M Wing, Jade Garden, MIG Colony, Bandra East, Mumbai-400051 PAN: AAFCP9745D Revenue- अपीलाथ� / Appellant Assessee-��थ�/ Respondent :

C.O. No.148/Mum/2026 (Arising out of I.T.A. No. 5297/Mum/2025) (Assessment Year: 2020-21) M/s. Priyam Projects (I) Income Tax Officer-16(3)(1) Room No.447, Aaykar Bhavan, M.K. Private Limited 1502, M Wing, Jade Garden, Vs. Road, Mumbai-400020 MIG Colony, Bandra East, Mumbai-400051 PAN: AAFCP9745D Assessee- अपीलाथ� / Appellant Revenue -��थ�/ Respondent :

Assesseeby : Shri Neelkanth Khandelwal, CA Revenueby : Shri Ajay Soneji, Sr. DR Date of Hearing : 29.06.2026 Date of Pronouncement : 03.08.2026

O R D E R Per Arun Khodpia, AM: The captioned appeal and cross objections are filed by the Revenue and the assessee respectively against the order of the Commissioner of Income Tax

ITA No. 5297/Mum/2025& CO 148/Mum/2026 M/s. Priyam Projects (I) Private Limited Appeals/National Faceless Appeal Centre (NFAC), Delhi[in short,“the Ld. CIT(A)”], dated 30.06.2025, for the Assessment Year (AY) 2020-21, which in turn arises from the order under section 147r.w.s 143(3) of the Income Tax Act, 1961 [in short,“the Act”] dated 25.02.2025, passed bythe Assessment Unit, Income Tax Department[in short,“the Ld.AO”]. “Grounds raised by the Revenue in Appeal 1. creditworthiness of the lender? On facts and in law, the Ld. CIT(A) erred in deleting the addition of ₹1,80,00,000/-made by the Assessing Officer under section 68 of the Income-tax Act, 1961, without appreciating the fact that the assessee failed to satisfactorily establish the genuineness and creditworthiness of the lender? 2. Whether the Id. CIT(A) erred in not appreciating that mere filing of ITRs, bank statements, and confirmation letters does not prove the genuineness or creditworthiness of the transaction, especially when the bank account of the lender reflected that funds were received from unknown third parties immediately prior to advancing the alleged loan? 3. Whether the Id. CIT(A) erred in ignoring the findings of the AO that the lender did not have sufficient credit balance in her bank account on the date of advancing the loan, and that the funds were routed from unknown third-party sources, thus creating a façade of a genuine loan? 4. Whether the Ld. CIT(A) erred in holding that the assessee had discharged its onus under section 68 of the Income-tax Act, 1961 without considering that the assessee did not establish the "source of source", which is essential in case of private companies as per the first proviso to section 68 of the Income-tax Act, 1961” Grounds raised by the assessee in Cross Objection “The cross objectors contend that on the facts and in the circumstances of the case and in law, the Assessing Officer does not have the information which would suggest that the income of the cross objector has escaped assessment and hence, the impugned notice issued under section 148 is bad in law and consequently, the assessment order needs to be quashed.” 2. Brief facts of the case are that the reopening assessment in the present case u/s 147 r.w.s 143(3) was completed with an addition of Rs.1.80 Crore on account of financial transactions undertaken with Ms. Anita Mantri by taking bogus loans in financial year 2019-20. A notice u/s 148A(a) was issued to the assessee which 2

ITA No. 5297/Mum/2025& CO 148/Mum/2026 M/s. Priyam Projects (I) Private Limited was partly responded by the assessee. Further, the Ld. AO made enquiries by issuing notice u/s 133(6) to IDBI, HDFC Bank and to Ms. Anita Mantri.In compliance, Ms. Anita Mantri submitted her reply on 07.12.2024. Before the Ld. AO, Ms. Anita Mantri has furnished her reply along with certain documents such as ledger account, bank statement, certified copy of Board Resolution for conversion of loan by issue of 0.01% non-cumulative/ redeemable/optional convertible preference shares and allotment to the lender, list of allottees, return of allotment, share certificate issued in the name of her.Ld. AO observed that an interest freeloan has been granted by Ms. Anita Mantri in financial year 2019-20. Further, the assessee company has issued 90,000/- non-cumulative/ redeemable/optional convertible preferenceshares to Ms. Anita Mantri at the value of Rs.200 per share having face value of Rs.10 and premium of Rs.190 per share to settle the aforesaid loan.

ITA No. 5297/Mum/2025& CO 148/Mum/2026 M/s. Priyam Projects (I) Private Limited 2019-20 respectively. It is observed that the loan amount granted by Ms. Anita Mantri does not commensurate with her income as per her returns of income. It cannot be believed that the person having such a meager income can grant a loan of Rs.1.80 crore. Further, the assessee was unable to explain the aspect as to why Ms. Anita Mantri has provided an interest free loan.

ITA No. 5297/Mum/2025& CO 148/Mum/2026 M/s. Priyam Projects (I) Private Limited From the detailed submissions made by the assessee during the assessment proceedings as well as appellate proceedings following conclusions has been drawn:- 1. During the course of re-assessment proceedings, AO has asked the assessee course o to prove creditworthiness, genuineness of loan of Rs. 1,80,00,000/-, received from Sri. Anita Mantri along with all documentary evidences. In response to which assesse has submitted all the details related to loan received from Smt Anita Mantri along with documentary evidences. Further, AO has made independent enquiry with Smt. Anita Mantri, in response to which she has submitted all the details along with her ITR, ledger confirmations and bank statements and explained about the source also. From the submissions of the assessee it is evident that, during the assessment proceedings Sri. Anita Mantri has submitted her ITR, Bank Statements and ledger confirmations and explained that she has given loan to the assessee company out of her own funds and loans received from other parties. In this regard, she has even submitted copy of her bank statement. Accordingly, she has explained the source of the funds given to assessee company. 1.Here it is important to note that regarding loans received during the year, bywhatever name called, amendment to 1st proviso to sec.68 of the Act was introduced w.e.f 01.04.2023, which mandates that source of source should be verified. It is reproduced as below: Cash credits. 40 68.41 Where any sum is found credited in the books 42 of an assessee maintained for any previous year, and the assessee offers no explanation 42 about the nature and source thereof or the explanation offered by him is not, in the opinion of the 43[Assessing] Officer, satisfactory, the sum so credited may 42 be charged to income- tax as the income of the assessee of that previous year: 44 [45[Provided that where the sum so credited consists of loan or borrowing or any such amount, by whatever name called, any explanation offered by such assessee shall be deemed to be not satisfactory, unless,- (a) the person in whose name such credit is recorded in the books of such assessee also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that] where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:

ITA No. 5297/Mum/2025& CO 148/Mum/2026 & CO 148/Mum/2026 M/s. Priyam Projects (I) Private Limited M/s. Priyam Projects (I) Private Limited 46 [Provided also] that nothing contained in the first proviso 47 [or second 46 [Provided also] that nothing contained in the first proviso 47 [or second 46 [Provided also] that nothing contained in the first proviso 47 [or second proviso] shall apply if the person, in whose name the sum referred to therein is proviso] shall apply if the person, in whose name the sum referred to therein is proviso] shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capit recorded, is a venture capital fund or a venture capital company as referred to in al fund or a venture capital company as referred to in clause (23FB) of section 10.] clause (23FB) of section 10.] 1. From this it is clear that in A.Y 1. From this it is clear that in A.Y-2020-21 that amendment to 1st proviso to sec.68 21 that amendment to 1st proviso to sec.68 of the Act was not affective and hence the assessee company had correctly prove of the Act was not affective and hence the assessee company had correctly prove of the Act was not affective and hence the assessee company had correctly prove the identity, genuineness and creditworthiness of the loans received of dentity, genuineness and creditworthiness of the loans received of dentity, genuineness and creditworthiness of the loans received of Rs.1,80,00,000/- and thus discharge its onus as per provisions of IT Act. and thus discharge its onus as per provisions of IT Act. and thus discharge its onus as per provisions of IT Act. 2.From the submisisons 2.From the submisisons made by assessee during the assessment proceedings as made by assessee during the assessment proceedings as well as appellate proceedings, it is clearly evident that in subsequent year these well as appellate proceedings, it is clearly evident that in subsequent year these well as appellate proceedings, it is clearly evident that in subsequent year these loans were converted to non cumulative, redeemable optional convertible loans were converted to non cumulative, redeemable optional convertible loans were converted to non cumulative, redeemable optional convertible preference shares, as evident from the copy of preference shares, as evident from the copy of Board Resolution dt. 12.03.2021 Board Resolution dt. 12.03.2021 submitted during assessment proceedings, as reproduced below: submitted during assessment proceedings, as reproduced below:

In the resolution itself, it is clearly mentioned that these were originally loans, later In the resolution itself, it is clearly mentioned that these were originally loans, later In the resolution itself, it is clearly mentioned that these were originally loans, later on converted into preference shares, which not only involves loans of Smt. Anita on converted into preference shares, which not only involves loans o on converted into preference shares, which not only involves loans o Mantri, but of few other persons also, which establishes the genuineness of this Mantri, but of few other persons also, which establishes the genuineness of this Mantri, but of few other persons also, which establishes the genuineness of this transaction. Further more, it is also proved that in. A.Y Further more, it is also proved that in. A.Y-2020-21 this amount of Rs.1,80,00,000/ 21 this amount of Rs.1,80,00,000/- was loan only and hence amended provision of 1st proviso to Sec was loan only and hence amended provision of 1st proviso to Sec.68 of the I. T Act .68 of the I. T Act is not applicable to this transaction. is not applicable to this transaction.

ITA No. 5297/Mum/2025& CO 148/Mum/2026 M/s. Priyam Projects (I) Private Limited 3.Further, assessee puts reliance on number of judicial pronouncements,which are discussed as below: 1. Gujarat High Court in the case of Neotech Education Foundation [2023] 458 ITR 150 wherein in the proceedings before CIT(A) it was held that the assessee had discharged its onus by fumishing the necessary details such as a copy of PAN, bank details and ITR etc., in support of identity of the parties, genuineness of transaction and creditworthiness of the parties. It was held that the assessee had discharged the primary onus cast under section 68 and onus shifted on the Assessing Officer to prove otherwise based on contrary materials on record. On further appeal, the Tribunal also upheld the order passed by the Commissioner (Appeals) and revenue filed appeal before High Court. 1. Gujarat High Court in case of Deputy Commissioner of Income-tax vs. Rohini Builders (2003] 127 Taxman 523 (Gujarat), has held by referring S.C stance in Orissa Coporation Prv Ltd Vs CIT that the burden of proof lies with the Revenue authorites once the taxpayer provided the basic details of the creditors. 2. Bombay High Court in case of Amilndustries (India) (P.) Ltd. [2020] 271 Taxman 75 (Bombay). 4. From the above factual matrix and judicial pronouncements, it is clearly evident that assessee company has discharged its onus by submiting ITR, ledger confirmations and bank statements of the lender, and thus establishes the identity, genuinenss and creditworthiness of the transaction for relevant A.Y-2020-21, as amendment to 1st Proviso to Sec.68 regardings loans is effecitve from 01.04.2023. Further more, this loan of Rs.1,80,00,000/- along with other loans was converted into redeemable preference shares in subsequnt year, regarding which assessee has submtited all documentary evidences viz.Certified copy of board resolution for conversion of loan by issue of 0.01% non cumulative Redeemable/optional convertible Preference Shares and allotment to the lenders (Annexure C3), List of allottes for issue of 0.01% Non-Cumulative -Redeemable/optional convertible preference shares (Annexures C4), Return of allotment in Form PAS-03 filed with Registrar of Companies (Annexures C5), Share certificate issued in the name of Anita Mantri for allotment of preference shares (Annexure C6), which confirms assessee contention about the genuineness of the transaction and the fact that in the A.Y-2020-21 it was a loan. Besides that assessee has put reliance on judicial pronouncement by Hon'ble Gujarat High Court and Hon'ble Bombay High Court as discussed above, which clearly states that once assessee has discharged his onus, regarding identity, creditworthiness andgenuineness, it is for the AO to prove otherwise on the basis of contrary material available on record, which AO has failed to do in this case. 5. Accordingly, on the basis of above factual analysis and by putting reliance on judicial decisions as discussed above, relief is given to assessee in this case and AO is directed to delete this addition of Rs. 1,80,00,000/-. 6. Accordingly, assessee appeal is hereby allowed.”

ITA No. 5297/Mum/2025& CO 148/Mum/2026 M/s. Priyam Projects (I) Private Limited 6. Since the appeal of assessee has been allowed by the Ld. CIT(A), the Revenue is in appeal before us.

7.1 It was further submitted that the genuineness of the transaction was also doubtful for the reason that the amount received by the assessee was not repaid to the lender. Instead, 0.01% non-cumulative, redeemable/optionally convertible preference shares were allotted to the lender towards settlement of the loan. It was also pointed out that the Ld. AO had clearly demonstrated that the income of the lender was meagre and not commensurate with the quantum of loan advanced by her.

7.2 It was, accordingly, submitted that the decision of the Ld. CIT(A) in deleting the addition was not justified, as the assessee had failed to discharge its onus of establishing the genuineness of the transaction and the creditworthiness of the lender. In view of the aforesaid submissions, the Ld. DR prayed that the

ITA No. 5297/Mum/2025& CO 148/Mum/2026 M/s. Priyam Projects (I) Private Limited order of the Ld. CIT(A) be set aside and the addition made by the Ld. AO be restored.

ITA No. 5297/Mum/2025& CO 148/Mum/2026 M/s. Priyam Projects (I) Private Limited 8.1 It is further clarified by the Ld. CIT(A), referring to the Board Resolution that such loans received by the assessee was later converted into preference shares, not only from Ms. Anita Mantri but from few other persons also, which establishes the genuineness of the transaction. Ld. CIT(A) referred to the decision of Hon’ble Gujarat High Court in the case ofNeotech Education Foundation [2023] 458 ITR 150 according to which once the assessee had discharged the primary onus cast u/s 68, the onus would be on the Assessing Officer to prove otherwise based on contrary material on record. Ld. CIT(A) noted that in the instant case, the Ld. AO was unable to prove otherwise on the basis of contrary material available on record. Therefore, the addition u/s 68 has no legs to stand.

8.2 Based on aforesaid submissions, it was the prayer by Ld. AR that the Ld. CIT(A) has adjudicated the issue following the ratio of law and settled principles emerging from the jurisprudence accorded by Hon’ble Courts. Therefore, the addition made by Ld. AO was deleted in terms of settled principles of law, the order of Ld. CIT(A),therefore, deserves to be upheld.

ITA No. 5297/Mum/2025& CO 148/Mum/2026 M/s. Priyam Projects (I) Private Limited into 0.01% non-cumulative/redeemable/optional convertible preference share treated as a bogus transaction by the Revenue and certain documents with clarification sought from the assessee as well as the lenders and the banks involved therein to check pre-conditions u/s 68 of the Act. Before Ld. AO, the assessee furnished various documents pertaining to lender and the transactions such as ledger account, copy of Board Resolution, list of allottees, return of allotment and share certificate issued. Ostensibly, the lender Ms. Anita Mantri had also furnished requisite documents before the Ld. AO such as ITR, computation of income, bank statement, share certificate and copy of ledger in the books of assessee. It is observed by Ld. AO that Ms. Anita Mantri has meager income in her return of income, however as per bank transactions, she has transferred an amount of Rs.1.80 crore after receiving such amount from various parties on various dates during the year.

ITA No. 5297/Mum/2025& CO 148/Mum/2026 M/s. Priyam Projects (I) Private Limited that once the loan taken by the assessee is converted into preference shares, which were allotted not only to Ms. Anita Mantri but also to other few persons, the transactions cannot be treated as bogus or ingenuine.

ITA No. 5297/Mum/2025& CO 148/Mum/2026 M/s. Priyam Projects (I) Private Limited Revenue by bringing any supporting or corroborative material on record, except by raising doubts, assumptions or presumptions regarding the transaction and treating the same as a bogus transaction, we, in terms of the aforesaid deliberations, find no substance in the issues raised by the Revenue so as to arrive at a conclusion contrary to the decision of the Ld. CIT(A). Accordingly, the addition made under section 68 cannot survive.In the result, the grounds raised by the Revenue, being bereft of substance and devoid of merits, stand rejected.

ITA No. 5297/Mum/2025& CO 148/Mum/2026 M/s. Priyam Projects (I) Private Limited decision of Bombay High Court in the case of Hexaware Technologies Ltd. vs. Assistant Commissioner of Incom-tax [2024] 162 taxmann.com 225 (Bombay),becomes infructuous and need not be adjudicated.

Order pronounced in the open court on 03-08-2026.

Sd/- Sd/-

(ARUN KHODPIA) (NARENDER KUMAR CHOUDHRY) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated : 03-08-2026. Ankit K., Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT

BY ORDER,

(Dy./Asstt. Registrar) ITAT, Mumbai